Customer Relationship Management (CRM) has been put forward as a cure-all for defects in customer service (and resultant loss of customers). Here, Julian Johnson of PA Consulting Group offers a comprehensive analysis of this technology and provides a step-by-step guide to a more appropriate strategic approach.
CRM is rarely implemented for the purely altruistic reason of understanding customers better. Improving sales has been a key driver for many institutions’ investment in Customer Relationship Management (CRM) technology over the past decade. Companies have based their revenue-building strategies on improving customer retention and increasing their product holdings, on the basis that less effort is required to sell more to existing customers, than it is to win new ones.
Therefore, revenue estimates contained in CRM business cases typically rely upon delivering a step change increase in the cross-sell ratio.
However, evidence from a number of quarters and industries indicates that CRM technologies, on their own, will not generate the results expected. Reports from Gartner Group and Meta Group highlight that:
- through 2006, more than 50 per cent of all CRM implementations will be viewed as failures from a customer’s point of view
- 55-75 per cent of all CRM projects fail to meet their objectives
- the majority of businesses implementing CRM systems will underestimate the costs of CRM projects by as much as 40- 75 per cent.
More than just technology?
The key to success is achieving the correct balance between the business change levers and the IT enablers. Many investments focus solely on the IT and, while these are undoubtedly critical, to really capture and work the value of the customer base, an organisation-wide effort is required. In PA’s experience, achieving a step change in cross-sell targets requires the following:
- A clearly articulated customer strategy communicated to each segment of the organisation
- An integrated business model to ensure the segments ‘fit’
- Appropriate reinforcing mechanisms to create a virtuous circle which constantly enhances the process.
Let’s take these strategies individually and see what each means in practice.
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Three action strategies to make CRM work: key features
- A clearly articulated and communicated segment-level customer strategy
- An integrated business model
- Appropriate reinforcing mechanisms to create a virtuous circle
- Identify a range of cross-sell opportunities
- Prioritise efforts
- Build the business case
- Organisational change management
- Processes which ‘fit’ together
- Data management
- Technology balance
- Systems at individual level (motivators)
- Organisational-level (business impact feedback)
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1. A clearly articulated and communicated segment-level customer strategy
A segment-level customer strategy is the cross-sell road map for the organisation. It clearly articulates the target customers, what are the target offerings/proposition, and how the organisation plans to deliver the results.
Without such a strategy, businesses will make little headway in their cross-sell objectives. Essentially, it’s a simple process with three clear and cumulative steps:
First, identify a range of cross-sell opportunities. This involves identifying a number of segments where there is an opportunity to sell additional products or services. This will be achieved through a needs-based segment analysis and undertaking a gap analysis against what customers already have.
Second, prioritise efforts. Many of the cross-sell opportunities identified can simply be ignored because the change in organisational capability required to deliver them is too great. Those options that remain can then be assessed and prioritised on a more formal economic approach consisting of potential revenue set off against the investment and ongoing servicing costs.
Third, build the business case. With a prioritised list of segmented cross-sell opportunities the business case for a programme of work can be built up from the analysis of each option. The resulting business case will detail the priority segments and the cross-sell proposition for each, together with the business change required to deliver and the overall economic benefit.
2. An integrated business model
Many cross-sell initiatives have relied on CRM technologies as the key enabler. However, significant improvement in cross-sell is possible, at least in the early stages, with only small investments in IT. To do this requires a balanced business design which focuses on the key elements necessary to deliver against the customer objectives and the business case in the areas of:
- Organisation
- Processes
- Data
- Technology.
Organisation – It is vital that organisational change management considerations are fully integrated into the overall cross-selling programme. There are change management issues at two levels:
Level A: the individual – there is a need to adjust the selling style to better meet today’s customer expectations and to learn how to use the new technology tools to enhance their sales performance
Level B: the business – achieving the highest level of cross-sell possible requires greater cross-functional working than before.
| Figure 1: A single view of the customer will incorporate three types of data, using the retail financial services as an example |
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Processes – There are two key factors that cross-sell processes must achieve in order to increase the probability of sale:
- Making it easy for customers to say ‘yes’ by simplifying the experience and eliminating the need for customers to enter data already held by the business
- Ensuring that processes are designed to integrate the technology into the day-to-day activities of the individual employee in a manner that makes the sale and application simple.
Data – The amount of data required to achieve real customer insight in businesses, especially retail organisations, is immense and covers many different types (see Figure 1 – based on an example in the retail financial services sector):
- Product usage – the products customers use and the statistics associated with them
- Learned information – the information that is learnt over time from various customer interactions. This will help the organisation to understand income and purchasing patterns
- Derived information – the output of various models that use product and learned information as input.
The danger with complex data requirements is that the business delays the launch of cross-sell and CRM initiatives until well advanced in collating all data. However, benefits can be gained early by using what is available and building capability over time.
Technology – Technology is a key enabler, but is only a means to the end. It enables the whole business to see and serve customers in the same way through:
- Accessible data
- Efficient and consistent processes.
The key is getting the balance of technology investment appropriate for the specific goals set out in the customer strategy.
3. Appropriate reinforcing mechanisms to create a virtuous circle
A well thought out customer strategy and a well-designed business system will not succeed without the appropriate reinforcing mechanisms. These mechanisms need to be in place at two levels:
- Level 1: Individual – Linking staff measurement and rewards to cross-sales and the resulting improvement in customer value is fundamental to achieving the business change required, as it allows staff to receive tangible benefits from their efforts. However, any measurement system must be equitable and have balance. As many organisations have discovered to their dismay, ‘you get what you measure’ – a focus solely on market share or customer growth can result in staff creating new customer records for every new transaction, even for existing customers. But when the measurement focus changes to cross-sell, staff simply merge the duplicate customer records
- Level 2: Business – At the corporate level, it is more than just a case of ensuring that the cross-sell ratio is moving in the right direction, but also that it is achieving the bottomline improvements anticipated in the business case supporting the strategy.
Organisations need management information that enables them to understand how various inter-related performance indicators – such as customer churn, cross-sell ratio, product margins, etc – impact on the bottom line. Appropriate actions can then be taken to refine the strategy.
